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Sunday, April 25, 2010

Buying a house is a big deal. So is getting a mortgage. As with any investment, when you buy a house and a mortgage you assume both upside and downside risk. You are responsible for both sides of that bet, not someone else.

Hennessey looks at the proposals from the Obama Administration and some of the terms, as well as scenarios that are indicative of the situation some homeowners face.

One of his conclusions:

I would not use tax dollars to subsidize homeowners with fixed rate mortgages. It’s unfair to the taxpayers, those who rent, and those who might want to buy a home. It also slows down painful but inevitable housing market adjustments. I would treat a loss on a home’s value the same way I would treat an investment loss in the stock market. Both are private responsibilities of the investor.

I hope you'll read the entire article and educate yourself about the issue.

Kadim - I disagree that tax deductions are the equivalent of subsidies.

Setting up tax deductions that are available for any individual who chooses to take advantage of them is not a detriment to my neighbor who doesn't take the deduction. The only way you could make such an argument is if you posit that all people should pay the exact same amount of taxes as everyone else, so any reduction in the set amount results in you getting the same services for a less price.

Now, if you believe that everyone should pay a flat rate of, for example, 10% and anyone who doesn't is thus being subsidized by the others, I could agree with you.

But that's not what I understand you to be saying.

In order to take your argument to a logical conclusion, you'd have to apply this logic to all deductions in the tax code. So if I take a deduction for charitable donations, under your position, I would be getting a subsidy for making that donation.

I believe that the mortgage tax deduction is considered a textbook example of a subsidy, and moreover, is the largest subsidy the federal government has. (A google search shows plenty of articles calling it a subsidy.)

The fact that it is structured in the tax code does not change that it's a subsidy--a cash incentive to individuals to do something or continue doing something in particular.

What I am arguing is that individuals who make the same amount of money should pay, under our tax system, the same amount of tax. Any household with $100k in income should pay the same amount of income tax.

However, a hypothetical Person A could be subsidizing another Person B, even if they have the same income and dependents

*If Person A decides to be a renter

*If Person A buys a cheaper home than Person B

*If Person A buys the same price home as Person B but saves for a bigger down-payment

(You could argue, therefore, that under certain circumstances, the mortgage interest deduction rewards irresponsibility to the disadvantage of responsible tax payers. We'd call a person who rented and saved as much money as they could for their house down-payment responsible, but they'd be an idiot under the tax code. They'd be subsidizing those who bought their house with little down-payment.)

A lot of income tax deductions are subsidies for the individual tax payer at the expense of other tax payers (mortgage interest, property tax, child care, children as dependents, etc.)

But the charity deduction isn't one of them. The charity deduction is not a subsidy to the individual tax payer (who would pay the same amount of money one way or another), it's a subsidy to charities, who would otherwise be losing money to the federal government.

Kadim - while that might be 'easier' I don't believe it would be better...

But then, I believe that no one should have their taxes withheld from paychecks, etc. I think everyone should have to pay their taxes on a quarterly basis. Maybe then people would actually realize just how much of their hard-earned money was going to government...